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Louisiana Wins Fight for Hospital

Ending one of the longest-running disputes left by Hurricane Katrina, a federal arbitration panel ruled Wednesday that Louisiana would receive $474.8 million — nearly all it had requested — to pay for the replacement of Charity Hospital in New Orleans, which has been closed since the storm.

The ruling is a significant victory for state and city officials, and gives a major boost to plans to replace Charity, a state-owned hospital for the indigent, with a new $1.2 billion academic medical center in the Mid-City neighborhood.

“This is a great week in Louisiana,” Gov. Bobby Jindal, a Republican, exulted in a statement. “First, the Saints’ victory, and now we finally get the funds we need to replace Charity Hospital.”

The plan to build a new Charity has pitted economic development advocates, who hope to transform New Orleans into a biosciences center, against neighborhood preservationists, who oppose the planned destruction of historic houses in Mid-City. The preservationists argue that Charity’s 70-year-old art deco tower downtown could be reoccupied for less money, reinvigorating the central business district in the process.

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The waiting room of Charity Hospital in New Orleans, closed since Hurricane Katrina in 2005.Credit
Cheryl Gerber for The New York Times

The state’s ability to afford the new center, which would be built adjacent to a Veterans Affairs hospital, had been linked to the outcome of the arbitration. An additional $300 million has been appropriated by the State Legislature, and the rest is expected to come from the sale of revenue bonds.

State officials and the Federal Emergency Management Agency had been locked in a dispute for more than four years about whether Charity was so damaged that it had to be replaced, and how much Washington would owe.

The state argued that Charity met the federal standard for replacement because damages caused by the 2005 storm amounted to more than half its value. State officials estimated the replacement cost at $491.9 million.

FEMA had projected it would cost $126.1 million to repair Charity, and had offered $150 million to settle the dispute. With the sides making little headway, Senator Mary L. Landrieu, Democrat of Louisiana, inserted language in the stimulus bill last year to create a binding arbitration process.

The arbitration panel, consisting of three judges from the Civilian Board of Contract Appeals, ruled quickly after a weeklong, closed-door hearing in Washington that ended on Jan. 15. The only victory for the emergency management agency was that the judges accepted its slightly lower estimate of the hospital’s replacement cost.

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Charity Hospital in New Orleans in May 2008. The hospital has been closed since it suffered water damage during Hurricane Katrina.Credit
Mario Tama/Getty Images

In their ruling, the judges noted that the agency’s officials “were less experienced and less credible” than the consultants hired by the state to assess damage at Charity.

While FEMA questioned whether some of the damage was storm-related, “the witnesses and record offered inadequate support to make the skepticism reasonable,” they wrote.

The panel noted that some of Charity’s systems were operating “at a sub-optimal level” before the hurricane and that the state’s protection of the building after the storm “may not have been perfect.” But it indicated that its ruling had not been a close call.

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“It’s unfortunate that it took this long to get to this point, but we’re glad that we’re finally there,” said P. Raymond Lamonica, general counsel for the Louisiana State University System, which would own the newly constructed hospital.

Jack Davis, president of Smart Growth for Louisiana, which opposes the new medical center, said the arbitration ruling should spur the state to rebuild the old Charity, which he said would be faster and less expensive to construct. Among other things, Mr. Davis said, it would save the time and cost of defending lawsuits that have challenged the new site on environmental grounds.

“Sometime soon, it will dawn on the political leadership that they can’t do the big expensive L.S.U. plan,” he said, “and that they’re going to have to settle on $800 million of new hospital, using Charity.”

A version of this article appears in print on January 28, 2010, on Page A14 of the New York edition with the headline: Louisiana Wins in Bid For Money For Hospital. Order Reprints|Today's Paper|Subscribe